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Kleinwort Development Fund and Dresdner Kleinwort Capital announce new joint venture

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Dresdner Kleinwort Capital (DrKC), the private equity business of Dresdner Bank, has announced the launch â€“ subject to shareholder approval â€“ of a new joint venture with Kleinwort Development Fund plc (KDF), an investment trust. The new company, Kleinwort Capital Limited (KCL), is effectively being formed to take over the business of Dresdner Kleinwort Benson Private Equity Ltd (DrKBPEL), a subsidiary of DrKC which has been investing in UK mid-market private equity transactions in the technology, healthcare services, media and specialist manufacturing sectors for 20 years. DrKBPEL is also the manager of KDF, which has been listed on the London Stock Exchange since 1986. The management of DrKBPEL has recently gained IMRO approval to transfer itself and the current activities of DrKBPEL to KCL; Richard Green and Andrew Hartley of DrKBPEL will become joint managing directors of the new venture. Hartley believes that the formation of KCL aligns the interests of the management team with its two largest clients. KDF will obtain an equity stake in its new management company (KCL) and both it and DrKC will provide cornerstone commitments and obtain preferred returns as sponsors to a proposed new fund and subsequent funds raised. As well as this internal benefit, third party investors will have the comfort of knowing that KCL is an independent management company, in which its management team owns an equity stake. The model of investors owning equity in private equity management companies is now commonplace â€“ recent examples in the UK include Duke Street Capital, Penta and Botts & Co. Investment trusts also owning a stake in their management company include Candover and 3i.

This tightening of the bond between investment trust and trust manager is expected to be value-enhancing for KDF and it has proposed some changes â€“ subject to shareholder approval â€“ to complement the re-organisation. Firstly KDF will change its name to Kleinwort Capital Trust plc, in order more closely to align the identity of KDF with its new manager, and secondly it has proposed a five-for-one share split (sub-dividing each existing share of 25p into five new ordinary shares of 5p) to aid the marketability of its shares.

It is understood that KCL will announce the launch of a new fund, Kleinwort Capital Partners IV, when shareholder approval has been gained and the proposed changes have all been completed. This is expected to be at the end of October and will be covered in full in a forthcoming edition of â€¦unquoteâ€. KDF intends to commit Â£50m to the new fund, alongside a further Â£50m from DrKC. The fund is expected to have a target range of Â£200m â€“ 250m and Hartley says that, in addition to the Â£100m coming from KDF and DrKC, the first close on the fund may also incorporate commitments from institutions outside of the Dresdner Bank family.